First Funds Released for Mortgage Relief Program

Financially stressed homeowners should finally begin to get some relief, now that the Treasury Department has completed arrangements with the first major lenders to participate in the administrations mortgage modification program.

The Treasury Department announced Wednesday evening that it will release nearly $10 billion to six major lenders to assist them in modifying at-risk mortgages. The funds are the first of $75 billion in subsidies and incentives the government has earmarked to encourage lenders to reduce mortgage payments for homeowners at risk of losing their homes to foreclosure.

Homeowners at risk of foreclosure have been applying for relief under the Obama Administration's Making Home Affordable program since it was unveiled on March 4. However, it's been a frustrating experience for most of them, as the administration and lenders continued to hash out the details, meaning few, if any, loan modifications or refinancing were approved. Now, with the first six lenders on board, it appears the program can go forward.

The initial participants that are receiving funds are Wells Fargo, JPMorganChase, Citigroup, GMAC Mortgage, Saxon Mortgage and Select Portfolio Services. Other lenders are expected to be added over time. Some lenders, including Wells Fargo and JPMorganChase, said they had already begun modifying mortgages under the program earlier in April.

Making Home Affordable is intended to help up to 9 million homeowners avoid foreclosure by enabling them to refinance or modify their mortgages. A key aspect of the plan is incentives for lenders to reduce a homeowner's mortgage payments to no more than 31 percent of income, including direct payments of up to $4,000 to the lender over three years. Homeowners may also qualify for up to $1,000 a year for five years to reduce their loan principal if they stay current on their payments.

The other major portion of the program enables at-risk homeowners to obtain assistance in refinancing their mortgages at lower rates. However, that part of the plan is limited to homeowners whose mortgages are held by either Fannie Mae or Freddie Mac, are current on their payments and whose home values have not declined to less than 105 percent of the mortgage balance.